2018 BOND BUYER PRE-CONFERENCE OCTOBER 1, 2018 JW MARRIOTT LA LIVE - - PowerPoint PPT Presentation

2018 BOND BUYER PRE-CONFERENCE

OCTOBER 1, 2018 JW MARRIOTT – LA LIVE LOS ANGELES, CA

Bond Buyer Pre-Conference: October 1, 2018

SESSION 1: WHY AREN’T ALL CALIFORNIA K-12 SCHOOL GENERAL OBLIGATION BONDS RATED AAA?

Bond Buyer Pre-Conference: October 1, 2018

Introductions

Moderator: Megan Reilly

Chief Business Officer Santa Clara County Office of Education

• Dr. Candi Clark

Chief Financial Officer Los Angeles County Office of Education

Scott Price

Chief Financial Officer Los Angeles Unified School District

Alvaro Meza

Assistant Superintendent of Business Services and Chief Business Official Gilroy Unified School District

3

School Issuance by the Numbers

K-12 Issuers $65,916 15.5% All Other Issuers $360,587 84.5%

Comparison of K-12 Issuers to All Other Issuers 2012-2017 ($ in Millions)

Total Issuance: $426.5 Billion Source: CDIAC Database 4/27/18

4

K-12 Debt Issued By Debt Type

83% 12% 3% 2%

Santa Clara Total $4,924.4 M

57% 19% 5% 3% 16%

Orange Total $3,355.4 M Other, 2%

$1,473.8 M

BAN, 2%

$1,521.4 M

COP , 4%

$2,366.3 M

TRAN, 27%

$17,777.2 M

GO Bond, 65%

$42,110.8 M

Statewide Total of New K-12 Debt $65,249,471,679

66% 30% 1% 2% 1%

Los Angeles Total $20,441.1 M Date Range: 1/1/2008 to 12/31/2017 Source: CDIAC Database 7/13/2018

5

GUSD At a Glance

11,000 TK-12th grade students in Santa Clara County About 1,075 full-time employees across 16 schools $125 million annual operating budget 2017-18 total assessed value $10 Billion

Gilroy Unified School District (GUSD)

6

GUSD Bond Overview

Tax Base Profile

 Low concentration amongst top 20 secured taxpayers  Taxpayer diversity including retail, commercial, food processing, residential, industrial, and

agricultural

 Growing community due to relocation of Silicon Valley residents

Bond Issuance Team

 Experienced team with solid financials

 Double-digit reserves, multiple management policies on debt and reserves, and stable to increasing debt

 Moderately structured bond sale

Voters authorized $389 million for GUSD Capital Facilities Program in three elections since 2002

7

CA Constitution Article XIIIA, Section 1 Limits Ad Valorem (AV) property taxes to 1%, unless voters approve additional tax to establish debt for a specific purpose. Propositions 46 and 39 Outline how voters can approve new General Obligation (GO) debt for K-14 schools. California Education Code §15250 County has authority to collect unlimited special taxes to pay for voter approved GO debt on behalf of district. California Education Code §15251 GO debt is payable from special AV property taxes, not the District’s General Fund.

8

AB 1200

Requires twice annual school self-certification of ability to meet financial obligations for 2 years. Established State oversight of schools. Rules to limit new debt for schools with qualified

• r negative self-certification.

Reduced bankruptcy risk for California schools.

9

Overview of LAUSD

613,274 K-12 students in Los Angeles County in FY 17/18 1,306 school and education centers located within 710 square miles Governed by 7-member Board of Education $10.6 Billion GO Bonds outstanding as of 6/30/18 Los Angeles Unified School District (LAUSD)

10

LAUSD Voter-Approved Capital Programs

 One of the largest in the country  Since 1997, voters approved $20.605 billion in five elections  Funds led to completion of about 600 construction projects, including 131 new K-12 schools  All districts now on traditional single-track calendar  Current focus is to modernize and repair existing schools

Maywood Academy High School

11

SB 222 (2015)

GO bonds secured by a statutory lien on the ad valorem taxes collected to pay principal and interest on GO bonds.

Lien still attached if school files for Chapter 9 Bondholders treated as secured creditors for property taxes, but statutory lien rights subject to automatic stay

12

Special Revenues

If ad valorem tax revenues that fund the GO bonds are “special revenues” under Chapter 9, then such revenues collected after the date of the bankruptcy filing would remain subject to the lien of the Resolution and the application of such revenues would not be subject to the automatic stay. While there is no binding judicial precedent, GO Bond ad valorem tax revenues appear to fit the definition of “special revenues”.

13

Lockbox

Tax revenues are held by the County Treasurer in the District’s interest and a Sinking Fund is established for the payment of GO bonds of the District.

Use of Sinking Fund ensures funds aren’t comingled with county money County cannot borrow from the District’s bond accounts

14

With legal protections and statutory authorities protecting CA K-12 GO school bonds, why are school bonds issued for anything less than AAA?

15

CA GO school bonds receive unlimited tax support, and all schools have the same reporting requirements. Why is a school’s operating budget or where a school is located considered when rating a bond?

16

Authorized But Unissued CA K-14 GO Bonds

1,040

Approved Elections

$133,805,000,000

Voter Approved GO Authority

$80,315,000,000

GO Authority Issued

$53,489,000,000

GO Authority Unissued

Data reported to CDAIC as of 1/22/2018, figures from CDIAC Publication: K-14 Voter Approve General Obligation Bonds, Authorized But Unissued, 2018 Update Gilroy USD: Christopher High School Gilroy USD: Gilroy High School Math Building

17

Authorized But Unissued CA K-14 GO Bonds

Data reported to CDAIC as of 1/22/2018, figures from CDIAC Publication: K-14 Voter Approve General Obligation Bonds, Authorized But Unissued, 2018 Update LAUSD: Dr. Sammy Lee Medical and Health Science Magnet LAUSD: Maywood Center for Enriched Studies (MaCES)

1,040

Approved Elections

$133,805,000,000

Voter Approved GO Authority

$80,315,000,000

GO Authority Issued

$53,489,000,000

GO Authority Unissued

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SESSION 2: K-12 SCHOOL DEBT FINANCE FROM THE COUNTY OFFICIAL'S PERSPECTIVE

Bond Buyer Pre-Conference: October 1, 2018

Introductions

Introductions: Joseph Kelly

Treasurer-Tax Collector County of Los Angeles

Moderator: Keith Knox

Chief Deputy Treasurer-Tax Collector County of Los Angeles

Antoinette Chandler

Assistant Treasurer-Tax Collector County of Los Angeles

Keith Crafton

Director Business Advisory Services Los Angeles County Office of Education

Shari Freidenrich

Treasurer-Tax Collector County of Orange 20

School District General Obligation (GO) Bond Issuance Process

AB 1200 School District Role During Issuance

21

Los Angeles County Office of Education’s Role and Oversight of a District’s GO Issuance Process

22

The County Treasurer-Tax Collector’s Role in the GO Bond Issuance Process

Working With the Financing Team Structuring, Pricing, and Issuance on Behalf of Districts County Issuance On Behalf of Districts

23

Investment Management of Bond Proceeds and the County Investment Pool

School District Use of External Money Managers Cash Flow Analysis of Bond Proceeds Developing an Investment Strategy

24

Compliance with SB 1029

Annual Reporting Debt Policy Certification Requirement

25

The Role of the County as the Paying Agent

In-House Versus Outsourced Escheatment

• f Uncashed

Checks

26

Data Information

 Graphs include data on new money issuance for

K-12 education purposes

 Graphs indicate if data is statewide or for specific counties featured in

this panel (LA, Santa Clara, and Orange)

 Date Range: January 1, 2008 - December 31, 2017  Unless otherwise noted, data as of July 13, 2018  Source: CDIAC Databases

27

Statewide K-12 Debt By Volume

$4337.9 $9073.8 $7882.6 $5791.3 $5967.3 $7328.4 $4001.8 $7107.3 $5033.9 $8725.2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Principal Amount (In Millions) Year Issued

28

County K-12 Debt By Volume

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Los Angeles $819.7 $5030.9 $3223.9 $1334. $1758.1 $2195.1 $641.6 $946.9 $1253.6 $1535.9 Orange $296. $295.1 $514.7 $462.1 $303. $211.9 $258.4 $109.4 $190.8 $351.3 $. $500. $1000. $1500. $2000. $2500. $3000. $3500. $4000. $4500. $5000.

Principal Amount (In Millions)

29

Statewide K-12 Debt By Year

$. $1000. $2000. $3000. $4000. $5000. $6000. $7000. $8000. $9000. $10000. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Principal Amount (In Millions) Year Issued Public lease revenue bond Other bond Limited tax

• bligation bond

COP Capital Lease BAN TRAN GO Bond

30

K-12 Debt By Purpose

K-12 School Facility

72%

Cash Flow, Interim Financing 27% Other 1%

Statewide County Specific

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Los Angeles Orange

K-12 School Facility Cash Flow, Interim Financing Other 31

K-12 Debt By Sale Type

Negotiated 85% Competitive 15%

Statewide County Specific

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Los Angeles Orange

Negotiated Competitive 32

Statewide K-12 CABs and CONV CABs

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CAB & CONV CAB Issued $415 $1,064 $628 $897 $563 $322 $197 $520 $68 $195 MAT/CONV Values $1,399 $4,609 $3,081 $4,920 $2,266 $821 $498 $1,093 $123 $397 Avg Debt Service Ratio 4.13 5.38 4.94 5.37 3.64 2.66 2.35 2.32 2.02 2.08 $ $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000

In Millions Year Issued

CAB & CONV CAB Issued MAT/CONV Values Avg Debt Service Ratio

Data as of July 20, 2018

33

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Orange $11 $82 $22 $141 $40 Los Angeles $56 $268 $20 $113 $73 $162 $45 $106 $20 $80 $ $50 $100 $150 $200 $250 $300 $350 $400 $450

In Millions

Los Angeles Orange

County K-12 CABs and CONV CABs

Data as of July 20, 2018

34

Statewide Average Cost Of Issuance For K-12 Debt

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Percent of Principal Year Issued GO Bond TRAN BAN COP Other

35

Average Premium By Year For K-12 Debt

Statewide Los Angeles Orange

2008 3% 3% 3% 2009 3% 3% 4% 2010 3% 3% 4% 2011 2% 4% 9% 2012 2% 2% 1% 2013 2% 2% 4% 2014 2% 3% 2% 2015 4% 4% 3% 2016 4% 5% 3% 2017 5% 4% 4% Average 3% 3% 4%

In terms of principal amount issued.

36

$25,000

Statewide Authorized But Unissued K-12 Debt

$ $5,000 $10,000 $15,000 $20,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 In Millions Election Year Data reported to CDIAC as of January 22, 2018

37

100%

County Authorized But Unissued K-12 Debt

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Percent Authorized But Unissed Election Year Los Angeles Orange Data may include funds from overlapping districts Data reported to CDIAC as of January 22, 2018

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CDIAC Pre-Conference

October 1, 2018

San Francisco’s Strategies to Collaboratively Address Ever-Changing Market Dynamics

Urban environments face shared challenges:

• Climate Change
• Cybersecurity
• Evolving Transportation
• Affordable Housing

40

City and County of San Francisco

The Controller’s Office of Public Finance Mission:

• Provide and manage low-cost debt financing for

large-scale, long-term capital projects and improvements that produce social and economic benefit to the City while balancing market and credit risk with appropriate benefits, mitigations, and controls

City and County of San Francisco

41

The Controller’s Office of Public Finance Objectives:

• Maintain cost-effective access to capital

markets

• Maintain moderate debt levels
• Meet capital investment demands
• Achieve the highest practical credit rating
• Ensure compliance with applicable local, state,

and federal law

• Ensure full and timely payment of debt

City and County of San Francisco

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• Green Bonds are like conventional bonds in how they are sold and

repaid

• Proceeds earmarked for climate change mitigation or adaptation

projects

• $165B issued in 2017, North America accounting for about 20% of

total (UN climate goal is $1T by 2020)

• US tax-exempt muni green bond market <10%
• Bonds may be self-certified or certified under CBI or the Green Bonds

Principles

• Opportunity to align the financing of green infrastructure projects

with dedicated green investors

What are Green Bonds?

43

SFPUC: Three Utilities & Credits Over $1.4B Green Bonds Issued

Water Enterprise provides drinking water to nearly 2.7 million people in SF Bay Area

• $765M Green Bonds Issued (CBI Certified)

Wastewater Enterprise operates City’s stormwater and sewage collection and treatment system

• $648M Green Bonds Issued (CBI Certified)

Power Enterprise operates three hydroelectric generation facilities for municipal purposes

• $32M Green Bonds Issued (Self Certified)

44

• Broadens investor base for SFPUC and other SF debt issuing

departments

• Potential pricing advantage from tax-exempt green bonds
• Aligns with San Francisco climate leadership
• SF has reduced greenhouse gas emissions by 30% from 1990 levels during 20%

population increase

• SF Mayor recently committed to four key policy goals:
• Zero Waste: Reduce waste by 15% and landfill disposal by 50% by 2030 (on top of current

97% green waste diversion)

• Decarbonizing Buildings: Net-zero buildings by 2050
• 100% Renewable Energy: All renewables by 2030
• Green Bonds: City signed Green Bond Pledge to finance all eligible projects with green

bonds

Why Issue Green Bonds?

45

• Amplify benefits of capital project delivery by splitting project costs

according to benefits received

• Hypothetical example: redesign underutilized urban space to

incorporate:

• Flood benefits – public utility, ie SFPUC
• Improved transit/pedestrian connection – transit agency
• Housing – Housing Authority, private or nonprofit developers
• Parks – parks department, local nonprofits

Joint Benefits

46

• Cybersecurity becoming threshold credit issue for rating agencies and

investors

• SFPUC relies on large, complex technology environment to operate its three

utility systems

• Constant and growing cybersecurity threats, including hacking, viruses, and

malware, can disrupt SFPUC’s essential service utility operations - other SF departments face similar threats

• In 2016, SF adopted a city-wide Security Policy to maintain and secure critical

infrastructure and data systems; City Chief Information Security Officer also appointed for all 54 City departments

Cybersecurity

47

• SFPUC abides by City’s Security Policy
• Also maintains its own information security programs specific to the Water,

Wastewater and Power Systems

• Recent best practice is to include disclosure in bond official statements

describing both SFPUC and city-wide cybersecurity measures and practices

• Coordinated legal disclosure and messaging by SFPUC and other city

departments provides best comfort to bond market regarding city-wide cybersecurity concerns

Cybersecurity

48

Total Airport Passengers in FY 2018

57,780,300

Source: Monthly Air Traffic Activity Reports submitted by Airlines, July 2017 – June 2018

7% increase from FY 2017

Setting New Records

49

Major International Gateways: Year-over-Year Growth

Source: Air Traffic data posted on respective Airports’ websites

*Boston-Logan and Washington Dulles data reflects FYTD May 2018

7.0% 5.1% 4.5% 4.1% 4.1% 4.0% 3.7% 1.0% 0.9% 0.1% 0.1%

• 4%
• 2%

0% 2% 4% 6% 8% 10%

% Change in Total Airport Passengers

Strong Passenger Demand

50

8-year Compound Average Growth Rate 5.2%

Source: Monthly Air Traffic Activity Reports submitted by Airlines, July 2010 – June 2018

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 2011 2012 2013 2014 2015 2016 2017 2018

Total SFO Passengers (Millions)

Fiscal Year

Domestic International 7.0% 7.7% 3.9% 3.2% 4.4% 6.6% 5.0%

Sustained Passenger Growth

51

Transportation Network Companies

TNC Trip Volume by Month

52

2014 2017 4% 24% 12% 9% 11% 4% 8% 7% 10% 7%

Source: SFO Passenger Surveys Note: Totals do not add up to 100% due to other modes not shown

Airport Mode Share

53

3am 6am 9am 12pm 3pm 6pm 9pm 12am 3am

Time of Day

Queue Length (cars)

Staging Lot Queue by Hour

Lot Limit = 160 Cars

1 3 5 12 27 31 39 36 39 36 35 35 32 33 32 35 36 36 39 29 20 12 5 2 3AM 4AM 5AM 6AM 7AM 8AM 9AM 10AM 11AM 12PM 1PM 2PM 3PM 4PM 5PM 6PM 7PM 8PM 9PM 10PM 11PM 12AM 1AM 2AM

FY 16/17 Avg Landings Per Hour

Aircraft Arrivals by Hour

Traffic Pattern

54

• Additional pick-up/drop-off location
• Differential fee structure

Starting July 1, 2018

Curbside Management

55

Affordable Housing

• San Francisco metropolitan area added

373,000 net new jobs in the last five years, but issued permits for only 58,000 units of new housing

• S&P Core Logic Case-Shiller National Home

Price Index up 164% since 2000

• San Francisco is the most expensive rental

market in the United States

• 1 bedroom median rent - $3,500
• 2 bedroom median rent - $4,680

56

Affordable Housing

Late Mayor Lee set the goal of 10,000 Affordable Homes by 2020, 1/3 from OCII

1,296 709 983 1,579

• 200

400 600 800 1,000 1,200 1,400 1,600 1,800

Completed & Occupied In Construction In Predevelopment In Planning

OCII-Funded Affordable Units

57

Affordable Housing

• Confirmed affordable housing

production obligations as enforceable

• bligations
• Awarded the right to use pooled tax

increment

• Eliminates limitations that existed

under Redevelopment Law

• Time limits relating to payment
• f enforceable obligations
• Number of tax dollars to be

collected

SB107 uniquely permits OCII to issue bonds to finance Affordable Housing Obligations required by the development documents for Mission Bay North & South, Hunters Point Shipyard/Candlestick Point and Transbay

58

Affordable Housing

• 5

10 15 20

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-1

Total Assessed Value ($ billion) Incremental AV Base Year AV % Increase Over Prior Year

3.6% 9.3% 4.1% 7.9% 3.6% 24.4% 19.9% 7.8% 1.1% $9.2B $19.6B

• Created diverse, stable, and growing

funding stream

• Base rates established in the 1960s

create significant growth opportunity

• Taxable values have increased 114%

since FY07-08

• Estimated to raise $500M at time of

passage

7

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SESSION 4: ISSUES FACING CALIFORNIA CITIES IN THE MUNICIPAL MARKET

Bond Buyer Pre-Conference: October 1, 2018

Introductions

Moderator: David Brodsly

Managing Director KNN Public Finance

Edward Enriquez

Assistant Chief Financial Officer and Deputy Treasurer City of Riverside

Jyothi Pantulu

Debt Manager City of San Diego

Natalie Brill

Chief of Debt Management City of Los Angeles

George Harris II

Deputy City Manager and City Treasurer City of Victorville

61

Issues Facing California Cities

Lessons learned while issuing debt Post-issuance administrative

• bligations

Debt policies Succession planning

62

Upcoming CDIAC Programs

PUBLIC FUNDS INVESTING WORKSHOP: USING MS EXCEL

October 23, 24, 25, 2018 | Aliso Viejo, California

CMTA/CDIAC FUNDAMENTALS OF PUBLIC FUNDS INVESTING

January 23-24, 2019 | Riverside, California

MUNICIPAL DEBT ESSENTIALS

February 12-14, 2019 | Riverside, California

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